Capgemini confirms strong IT demand

Capgemini, Europe’s largest IT services company, cheered its investors on Tuesday when it reported strong third-quarter sales growth and reiterated ambitious guidance for the full year.

Investors had been growing concerned about the outlook for IT services companies amid economic uncertainty, and several of Capgemini’s rivals, such as Logica
of the UK and TCS of India, have recently had poor results.

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However, Paul Hermelin, chief executive, said he had seen no slowdown in spending yet.

“It is not like three years ago, after Lehmans fell, when company budgets were instantly cut. Everyone is a bit cautious but demand has not collapsed,” he said.

Shares in Capgemini rose 5.4 per cent to €27.93 in early trade on relief that the company had beat estimates. Third-quarter sales rose 13 per cent to €2.38bn ($3.27bn), and Mr Hermelin said that sales for 2011 as a whole would be 9-10 per cent above last year. The operating margin will be 0.5 point higher than last year, at the lower end of previous guidance for a 0.5 to 1 point advance.

One of the signs that confidence is still high in the IT sector is the large number of IT professionals that are still changing jobs. When times are uncertain, people tend to hold on to their existing jobs. But the attrition rate – the percentage of people leaving – at Capgemini was 18.8 per cent in the third quarter, higher than the previous year.

“It is extraordinarily high if you compare it to business sentiment. But people are finding work. When they give us a letter of resignation it is usually when they have secured a new contract, so there is work out there,” Mr Hermelin said.

Despite the confidence in this year’s results, Mr Hermelin would give no guidance on 2012, saying it was too early to have a clear view.

However, the company is preparing itself for tougher times. Acquisitions have been put on hold, apart from one or two very small deals, for a few months while Mr Hermelin attempts to improve the company’s cash collection process and bring net cash back up to above €250m by the end of the year.